When you bifurcate a claim, you split it into a secured portion and an unsecured portion. Unsecured creditors in Chapter 13 are not paid interest. By bifurcating a claim, you can substantially reduce the amount you have to pay for certain items.
Here is an Example of Claim Bifurcation
Let’s look at an example. You are filing a chapter 13 case. You purchased a vehicle and financed it more than 910 days ago. The debt owed on the vehicle at the time you file your case is $20,000. The vehicle has been wrecked, has high mileage, and some mechanical problems. The NADA retail value for the vehicle is $10,000. In your chapter 13 case, you can split the claim into a $10,000 secured portion and a $10,000 unsecured portion. Only the secured portion will receive interest. The unsecured portion will be discharged at the end of your case with the remainder of your unsecured creditors.
Interest Rate set by the Court
The interest rate that you will have to pay is determined by the Bankruptcy Court. Most Bankruptcy Courts add 2 points to the prime lending rate at the time of the filing of the case. For Bankruptcy Debtors who have high interest rate loans, the ability to split the claim and pay a lower interest rate allows them to experience significant savings through their Bankruptcy Case.
Only Certain claims can be bifurcated
Not all secured claims can be bifurcated. For instance, you cannot bifurcate a claim secured only by real estate that is your primary residence. Additionally, you cannot bifurcate a creditor’s claim if you have not had the vehicle for more than 910 days unless the loan is a refinance of the vehicle. With a vehicle loan, you can reduce the interest rate even if you cannot bifurcate the claim. Bifurcating a creditor’s claim, when it is an available option, can substantially benefit you in your case. Your Tuscaloosa and Birmingham Bankruptcy Lawyer can help you determine if bifurcating a creditor’s claim is an available option and how much it can help you in your case.
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